Praetura Asset Finance Ltd v S Line Rentals & Ors

A contractual obligation described as both a guarantee and an indemnity must be construed by reference to the agreement as a whole. Separate obligations may have different legal characteristics. An undertaking to pay as if the guarantor were the principal obligor, and an express indemnity against loss, may create primary obligations. A claim founded on such obligations is a debt claim and attracts no duty to mitigate.

If the claim is instead one for damages, the claimant must act reasonably to mitigate loss. The standard is not demanding, and the defendant bears the evidential burden of raising the issue. Where competing recovery steps involve uncertainty, cost and delay, accepting a reasonable sale price may satisfy the duty.

The claimant financed the conversion of a Mercedes saloon into a hearse and let the vehicle to S Line Rentals Ltd under an unregulated hire purchase agreement. The second defendant had signed a document headed Guarantee and Indemnity. Following non-payment and the vehicle’s recovery from Italy, the claimant sold it for £30,000.

Liability had already been established. The remaining issue was whether the second defendant’s obligations were primary indemnity obligations, so that the claim was for a debt, or secondary guarantee obligations giving rise to a claim for damages. Alternatively, the court had to decide whether the claimant failed to mitigate by not obtaining further certification or re-registering the vehicle with the DVLA.

1. Construction of the guarantee and indemnity. The document contained obligations with different characteristics. Clause 2.1 was a guarantee, but clauses 2.2 and 2.3 created indemnity obligations. The phrase requiring payment as if the guarantor were the principal obligor was inconsistent with a guarantee. The express use of the word indemnifies in clause 2.3 reinforced that conclusion. Other provisions, including the continuing obligation and protections concerning variation, did not alter the construction. The certificate provision was supportive but not conclusive.
2. The obligations relied upon in the claim were primary indemnity obligations. The claim was therefore for a contractual debt, and no duty to mitigate arose.
3. Alternative damages analysis. If the claim had been one for damages, the claimant would have been required to act reasonably to mitigate its loss. The standard was not high because the defendant was the admitted wrongdoer. The evidential burden lay on the defendant to raise a properly arguable failure to mitigate.
4. The claimant acted reasonably. It investigated certification, obtained expert valuation evidence, considered the uncertain and potentially expensive route to obtaining a certificate of conformity, incurred storage charges, and accepted a sale price consistent with the expert evidence. It was not required to pursue an uncertain course in the hope of achieving a higher price.
5. In any event, the vehicle sold for more than the single joint expert’s valuation. The alleged failure to mitigate therefore caused no reduction in recovery. Judgment was entered for the claimant for £91,330.64, inclusive of recoverable storage and other costs.